Irs Installment Agreement Cost

Irs Installment Agreement Cost

An IRS installment agreement, also known as a payment plan, is a way for taxpayers to pay their outstanding tax debt in manageable monthly installments rather than in one lump sum. However, there are certain costs associated with setting up and maintaining an installment agreement with the IRS. In this article, we’ll explore these costs and what you need to know before entering into an installment agreement.

The first cost you will encounter when setting up an installment agreement is the setup fee. As of 2021, the fee to set up an installment agreement is $31 for online payments and $107 for non-online payments. This fee can be reduced to $0 if you meet certain low-income qualifications based on the federal poverty guidelines.

In addition to the setup fee, there is also an ongoing fee for maintaining the installment agreement. The fee is $89 per year for online payments and $149 per year for non-online payments. This fee is prorated based on the length of your agreement and can be waived if you meet certain low-income qualifications.

It’s important to note that interest and penalties will continue to accrue on your unpaid taxes while you are on an installment agreement. The interest rate is currently set at 3% per year, compounded daily. The penalties vary depending on the type of tax and the reason for the delinquency.

There are a few ways to reduce the overall cost of your installment agreement. The first is to pay as much as you can upfront. While the IRS will still charge interest and penalties on the unpaid balance, a larger upfront payment will reduce the overall amount owed, resulting in lower interest and penalty charges over time.

Another option is to request an Offer in Compromise (OIC), which is an agreement between the taxpayer and the IRS to settle the tax debt for less than the full amount owed. An OIC can significantly reduce the overall cost of the tax debt, but it’s important to note that the IRS only accepts a small percentage of OIC requests.

In conclusion, an IRS installment agreement can be a helpful way to manage outstanding tax debt, but it’s important to understand the associated costs. Be sure to factor in the setup fee, ongoing maintenance fee, and accrued interest and penalties when evaluating whether an installment agreement is the best option for you. If you have questions about your specific situation, it’s recommended to consult with a tax professional or the IRS directly.